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Dollar General And Family Dollar Are Better Than Five Below

April 30, 2014 | About:

Five Below (NASDAQ:FIVE), a specialty value retailer, came up with fantastic results recently. The stock had been performing outstandingly in the past. Five Below's business model has helped it post consistent results. Five Below operates on a similar model as that of conventional dollar stores like Dollar General (NYSE:DG) and Family Dollar (FDO), concentrating on providing inexpensive, trendy, and fashion-friendly items.

Decent results

Five Below always had an aggressive expansion strategy under which it added 28 new stores in the last quarter. Further, it was the 30th consecutive quarter of positive comps which resulted from comparable store sales increasing by more than 9%.

Five Below saw strong quarterly results. The company’s revenue grew by 28% as compared to the same quarter in the previous year. As a result of strong comps and new stores, Five Below also reported a 35% increase in net operating income. The EPS came in at $0.05.

Some weakness

As a result of fantastic fourth quarter results, Five Below exceeded its guidance for revenue. This was not enough for Five Below because the company’s guidance for earnings failed to meet analysts' expectations. The depressing outlook led to a fall in the stock price of the company.

Five Below’s share price nose dive was expected after its sub-par outlook since its trailing P/E indicates that the company usually trades at high rates. Further, if we look at the forward P/E, the company appears expensive while its peers look cheap.

Peers are better

In this instance, Five Below’s competitor Dollar General appears cheaper and its results indicate its continuous outperformance. Further, Dollar General’s operational efficiencies resulted in record earnings, beating consensus estimates. Dollar General can be a threat to Five Below if it doesn’t improve its operations.

Adding on, Dollar General also improved its earnings through the share buyback program, buying back 3.5 million shares for $200 million. Also, the company’s board authorized $1 billion share buyback program, resulting in a total authorization of $1.2 billion. The company posted earnings per share of $0.72, defeating consensus estimates.

During the quarter, Dollar General went through expansion and restructuring. Under this, it opened 577 new outlets; further, Dollar General is planning to open 650 new stores to tap more opportunities. In addition, the company also remodeled and relocated many of its stores seeking higher profitability. Dollar General is showing no signs of stopping as it is planning to open 700 new stores and relocate or reform about 525 outlets in 2014.

Family Dollar also came rolling out with good sales driven by the lower margin consumable category, which led the sales to increase by 74.2%. On the other hand, however, Family Dollar's revenue fell short of analysts' estimates.

Moving on, looking at the ratios, Family Dollar is the cheapest of all three companies. But the company is seeing weakness in same store sales. Further, Family Dollar is expecting this decline in the comp sales to continue as a result of stiff competition from its peers such as Dollar General.

On the other hand, Family Dollar is strong in terms of dividend (1.50%), which has increased for more than three decades. This makes it the best investment holding for the long term.


After the comparison, Family Dollar and Dollar General appear more profitable than Five Below as these are not as volatile as Five Below. Also, they are cheaper than Five Below. For a profitable investment, investors should prefer either Family Dollar or Dollar General.

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GuruFocus has detected 2 Warning Signs with Five Below Inc $FIVE.
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